Sunday, October 24, 2021

Botswana’s economy rated stable

S&P Global Ratings (S&P) has revised Botswana’s economic outlook from negative to stable on account of anticipated rebound in Botswana’s economic growth, partially led by the diamond mining recovery.

The top credit ratings agency in September 2020 changed Botswana’s economic outlook from stable to negative, following another negative outlook by another credit ratings giant Moody’s in May. The dim assessment was premised on expected higher pressures on the country’s economic, external and fiscal performance over the next two years, notably arising from the adverse impact of the COVID-19 pandemic, compounded by weaker diamond exports.

The latest move to change the economic outlook to stable is based on expectations that the country’s economic recovery will be driven by the anticipated strong recovery in the diamond market which, in turn, should result in a substantial improvement in the domestic fiscal and external sectors’ performance over the next two years.

S&P indicated that a change to the current rating, going forward, will depend on a variety of factors, with a possibility of an upgrade if Botswana manages to rebuild the fiscal and external buffers, along with sustainable diversification of the export base, with a view to cushioning the economy from future shocks.

According to a research paper published by Bank of Botswana analysing external sector developments and policy implications, the findings point to a weak economic growth and skewed trading position that has caused the government to withdraw from the reserves to plug the widening budget deficits.

Recent developments, exacerbated by COVID-19 outbreak, have exposed the country’s long running developmental changes – failure to diversify the economy from diamonds economy and lack of productive capacity, according to Baby Mogapi and Karabo Badirwang, economists at Bank of Botswana.

The Balance of Payments (BoP) – made up of the current, capital, and financial accounts – has deteriorated at the fastest pace in the last five years, mostly due to the underperformance of the diamond sector, which has been the anchor of the Botswana economy since they were discovered in the late 1960’s, and more than fifty years later, they account for an average of 90.8 percent of total exports, with diamond exports constituting 92.8 percent of the mineral exports.

The deterioration of the BoP has been unfolding alongside the slowdown in annual economic growth, which dropped considerably from an average of 7.1 percent during 2005 – 2007 to an average of 6.4 percent during 2010 – 2012. This was followed by an average of 4.6 percent, and 3.9 percent during 2013 – 2015 and 2016 – 2018, respectively. Annual GDP growth dropped further to 3 percent in 2019 and contracted by 7.9 percent in 2020.

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